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**Effect of the upcoming Italy referendum. **

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Effect of the upcoming Italy referendum.

Italians are set to go to the ballot on 4th December 2016, in what will be a historic referendum. Pundits are likening this vote to other anti-establishment votes namely Brexit and Trump’s win in US election. On that day, millions of Italians will queue up to decide whether senate powers should be reduced. They will also decide whether the number of senators should be reduced from 315 to 100. Also, if the majority votes yes, then a change in electoral laws will be imminent. A change in electoral law would make it difficult to remove the prime minister.

Italian Prime Minister Matteo Renzi fully supports this law. He wants to do away with the bureaucracy and blackmails that plague his position. His opponents, who include some members of his party, however, argue that the amendments will give way to a corrupt, inefficient government that would be impossible to get rid of. Whatever the referendum’s outcome, its consequences could have far-reaching consequences to the three widely used currencies. Let’s examine potential consequences for the pound, Yen and Euro.

Support for the Euro in Italy has been dwindling over the years. According to Pew’s Global Attitude Survey of 2014, only 50% of Italians are in favor of using the Euro as the country’s currency. Those opposed to the constitutional amendment are highly in favor of abolishing the use of the Euro. One party in particular, the 5-Star Movement, has been anti-euro for decades now. Should the no-vote carry the day next month, opposition leaders could begin championing for an anti-euro referendum which will weaken the euro. Further to a no-vote would destabilize the political climate in Europe which could weaken the Euro. A yes-vote on the other hand, could propel Renzi’s coalition government to initiate more reforms which will either boost the Euro or weaken it.

The Japanese Yen is one of the world’s most volatile currencies. Based on recent trends, the value of the Yen is likely to take a nose-dive at least until the political climate in Italy stabilizes. In the hours following Brexit vote, the Yen soared to 100 against the dollar. The Yen is highly susceptible to our global economy. If Italy’s anti-establishment parties win next month, Japanese overseas businesses and companies will be hurt further than it has already been hurt. It remains to be seen how Bank of Japan will react to changes in the value of the Yen come next month.

Sterling Pound
The sterling pound is going to be the biggest gain out of this referendum. It seems that increasingly the sterling benefits from protectionism rather than globalization. In the months following Brexit vote, the pound has found its footing and is even at an all-time high following Philip Hammond’s Autumn announcement. If the no-vote carries the day in Italy, it will strengthen the anti-euro movement there. This is likely to push investors out of the EU into UK and this will strengthen the pound. If yes-vote carries the day, the political reforms in Italy could also destabilize the political climate in Europe which will again push investors to UK, further strengthening the pound.

The December 4th election could be the greatest upheaval yet for the global economy. The Yen, the Sterling Pound and the Euro will be the most affected currencies.

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